How Vaibhav Gupta Built Udaan, India’s Fastest B2B Unicorn

Hans:  On the show today we have Vaibhav Gupta, or VG for short.  Co-founder of Udaan, which is India’s top B2B e-commerce company that connects manufacturers, wholesalers, with retailers and do in online.  The company is often referred to as India’s fastest unicorn having achieved over $1 billion valuation in a short period of only 26 months. Udaan is a GGV portfolio.

Rita:  Prior to starting Udaan, VG was the Senior Vice President in Business Finance and Analytics at Flipkart, one of the most successful e-commerce platforms out of India sold to Walmart in a $16 billion deal last year.  His other two co-founders for Udaan were the Former President of Operation and CTO at Flipkart. VG holds a bachelor’s degree in computer science and engineer from the Indian Institute of Technology and an MBA from the University of Virginia.  Welcome to the show VG.

VG:  Thanks guys.

Hans:  First of all, you have a successful run at Flipkart, so do your co-founders.  Can you tell us what were the lessons you learned from Flipkart and what gave you guys the idea to do Udaan?

VG:  Sure.  I think one of the big things we learned at Flipkart was how India was changing very, very fast.  Across the country you see mobile and Internet penetration in consumers and in businesses growing very fast.  People have started using mobile to not just buy and sell things but just to run their lives and run their businesses.  The second thing we saw that a lot of the India market, and we’ll probably talk more about it as we go, India market is very unique like China is very different than U.S., India is actually inherently very different than China and U.S.  Although the digitization is going very, very fast but the purchasing power of the consumers in the country is still actually very, very low.  Country is heavily unbranded.  A lot of old ways of trade and buying and selling still persist in the country.  We considered one of the big learnings we have had from Flipkart is that India has power, has an opportunity to build largescale platforms but they have to be thought natively.  Like people have to think about India as India’s problems and figure out solutions and products, actually, more than solutions, products which actually are targeted at Indian society, Indian economy, Indian ways of doing things, and then you can actually build a largescale sustainable platform.

Hans: Right.  And remember GGV is an earlier investor in Alibaba.  There were many other e-commerce companies that started before Alibaba in China, many of them try to copy either eBay or try to copy Amazon and neither model worked.  When Alibaba did Taobao it was uniquely solving problems the Chinese way.  So, can you explain in more detail why you choose to do Udaan?  What it is, what kind of problems Udaan’s trying to solve that’s uniquely Indian?

VG:  Sure.  I think when three of us started Udaan, one of the big things we were focusing on, finding big markets in India where mobile and Internet can create a huge disruption or a huge change, change the way of doing things.  If you look at how Indian economy is structured it’s still a very, very strong domestic trade economy.  Large part of economy in terms of value, as well as people involved in economy, like buyers and sellers or producers and manufacturers are small businesses.  And it’s a domestic trade economy.  You have 100 million plus manufacturers, farmers, producing things in the economy.  You have 25-30 million retailer endpoints consuming goods and then you have a million plus traders, channel players who are actually solving for the trade.  What we saw was that as we saw that mobile adoption was making all of them available online and for us, we saw that as an opportunity to actually think about a marketplace which can actually create value from bringing, solving for the fragmentation on supply and demand side.  It can create value from pricing.  It can create value from selection discovery, price discovery, quality discovery, and I think that’s one of the reasons we were attracted for the market because it was large, and the timing was right.

Hans: So, it sounds like there were many manufacturers and sellers on one end.  On the other side there are many, many small shops, the kirana stores, in the middle there are multiple layers of distribution and the wholesaler right in the middle make the most amount of money.

VG:  Yes.  If you would look across the country, you’d be surprised that one of the most profitable businesses is distribution and wholesale.  Most of these guys will typically have 40%-50% return on their capital.

Hans:  Wow.  That is very high.

VG:  If you look at the most successfully-run U.S. distributors like, let’s say, Sysco Food, they would have a return on capital of like 40%-50%.  These guys are actually very, very subscale but still are able to generate that much money.  And the biggest reason is because they’re sitting in the middle and you have fragmentation on both end and you also have the problem of India.  One of the big problems within the trade is that the credit, which is renewed to run the trade, runs on informal credit histories.  Most small merchants don’t have formal credit histories and thus these distributors, wholesalers come in the middle and actually start providing, start solving for the credit problem, which manufacturers, who are again small, are willing to pay a lot of margin for because manufacturers cannot take the payment risk.  And thus it increases the margin for the channel and returns for them.  And thus it is one of the very profitable industry in the country unlike retail in India, which actually is a relatively low-margin industry.  Distribution tends to be a highly capital-efficient, highly profitable industry.

Hans:  So, what you’re saying is that on the both ends the massive amount of sellers and the massive amount of small stores can only do trades with a few partners because those are people they trust based on past history of credit?  That limits their amount of growth they can do because they don’t have enough credit with more people to do business with.

VG:  Exactly.  You’re right Hans.  And it’s just, trust is also part of the Indian society like as much as it is, I think, in China.  People don’t trust a new person easily.  And they tend to stick with the existing people and in the context of trade, credit is definitely one that’s also the trust with respect to quality of product, reliability of supply.  And it’s for these reasons people tend to just stay in their existing supplier relationships.  But one of the big things I remember when we were starting and almost everybody used to ask us that small businesses in the country have long-term supply relationships, they would not want to move away from that.  What pleasantly surprise was that every single person we went to was willing to try.  It’s not like they will say that I’m going to replace all of my suppliers tomorrow, but yeah, it is okay.  You give me the app; I’ll place two orders and I will see what happens.  And that willingness to try was something you could say was a bit surprising for us because we’re expecting people to come back and for us to do a lot of arguments in our sales to actually convince them to try.  But almost everybody was willing to try.  And we just had to make it super easy for them to try.  And that was one of the big learnings we had.  We made it super easy for people to try.  We gave them products, we delivered them on their shop, we gave them cash on delivery.  So, for them it was just an easy way to download app and start trying.  And the more people who tried, we saw the next power of this use case, which was that it’s inherently a repeat use case.  If the person buys today, he’ll get up tomorrow and will buy again.  It’s not like he’s not going to buy the same product later on.  So, what we saw was people tried, they got a good experience, they started buying regularly.  And that continues to be a huge value to our platform that even if you look at today, despite we are adding a lot of new buyers every month, 80%-90% of the business on the platform is repeat business.  And that continues to add the lots of sort of power to the platform as it scales because you have so much stickiness and repeat built into the system.

Hans:  So, in your mind, when you started with doing Udaan, what is the biggest attraction that Udaan is offering to these sellers as well as the merchant buyers?

VG:  I think the biggest value for sellers was growth.  I think what we saw that when we started talking to some of these manufacturers, I remember talking to these typically will be a small-sized manufacturer, will have a factory unit, it will have probably about 50-100 employees.  When I started talking to them everybody was wanting to ask the question of how do I go on Internet?  What has happened was in India, Flipkart and Amazon had grown very well.  And almost every single manufacturer was thinking, how can I become Flipkart because they saw that Internet can scale so much and there’s so much people buying online, and I have products I want to sell.  And they were trying different ways.  They were hiring people to build apps for them.  They were hiring, going onto websites and signing for the listings, they were building their websites.  And the biggest underlying factor or intent was growth.  I think from Udaan’s point of view for sellers, I think that’s the biggest value that we create for our manufacturers and brand.  Udaan is one of the fastest growth channels now of trade in this country.  And for them that’s very, very meaningful.  I think for buyers, actually it is what you would see in an e-commerce platform like one of the things we saw that the small merchants in India actually behave very much like consumers when they think about buying products.  They want access to variety.  They want good pricing.  They want convenience.  They want reliable delivery.  They want an ability to order and forget about it and get it delivered and they want that habit of every time I order; this is the same experience I get.  That actually drives them.  One of the other things we didn’t talk about earlier is that we have built into platform early on the ability for buyers and sellers to negotiate with each other because that’s something which we were in going collective view of the world was that buyers tend to negotiate or buyers, sellers try to negotiate in trade.  As the platform started scaling, we quickly realized that small merchants don’t want to negotiate.  They just want to place the order and get done.  They don’t want to spend a lot of time on negotiating.  The bigger wholesalers negotiate.

Hans:  Because it makes a difference.

VG:  Bigger contractors, bigger distributors they negotiate but the smaller merchants don’t.  They’re just looking for selection.  Their job is, I am rotating my shop inventory once a week.  I just need to stuff it with one week worth of selection, get it sold, and make my fee.  I don’t want to negotiate that another 10% or 15%.  That was again was a learning from ground, that they want convenience.  They want just habit.  They want convenience.  They want selection pricing convenience and they don’t want anything to do after that.

Hans:  The sellers, you were saying earlier that they want to make sure they get paid.

VG:  Yes.  I think one of the big things for India, as you can imagine with the fragmented channel and unorganized channel, payment reliability, like on-time in-full payments to seller is one of the biggest problems in the country.  Despite people having distributors and wholesalers, they don’t know when they will get their payments.  And typically they will have to keep working with their channel, keep collecting in small amounts over a period of time, which is generally a norm in the country now.  And it’s not like defaults happen in trade.  Default does not happen in the trade in India.  It is mostly delayed payments and uncertain timings of the payment.  And that’s what Udaan did for them.  Udaan created a very, very reliable on-time every single time payment system for them.  And our sellers loved us for that.  I remember one of our sellers telling us a story that every morning I go to temple at 8:30 and at 9:00 I get payment from Udaan and I know my day has started well.  This keeps happening every day, so I know that in the morning I get payment.  Everything is fine.  And that’s a habit now he has built in.  Like every morning he’ll get that payment at 9:00 and he knows that everything is well.  Like he’s now wired like that and I think that’s the implicit trust on Udaan.  And I think in early, first two or three years we have focused a lot on ensuring that people can trust Udaan to do their business.  Obviously, we’ll make mistakes and we’ve been open about going back to them and telling them about that, but they understand that we are working on fixing it and we are transparent, and we maintain that view with them.  So, I think that is another big value for sellers, which is sort of payment security, on-time, in-full payments.

Rita:  Can you share a bit more in terms of the operation that is needed to ensure that payment security that delivers the trust you have with your customers?

VG:  Yes.  The two types of payment today are available on Udaan.  One is cash payment and the second is credit payments.  Cash payments are typically done by a cash-on-delivery service.  India has actually seen over the last year good evolution of e-commerce cash-on-delivery services.  We have third-party providers who provide cash on delivery.  We have our own Udaan express service, which provides cash on delivery.  It obviously is a fairly disciplined tightly-run operation because what we have promised to the sellers is one of the fastest payment times in the industry.  Like no platform actually gives to the seller delivery plus two.  Everybody has sort of payment terms with sellers.  We don’t.  we want Udaan to be the fastest and cheapest way of doing trading in the country.  And on credit, I think it’s a completely different problem.  We’ve been working with the NBFcs, which are called as non-banking finance companies in the country who has an ability to create lending products for merchants and consumers.  So, we work with them.  We have our own NBFC and together we look at the transactional and the usage behavior of our merchants on the platform and we link them to their credit performance.  We have basically an algorithm, which is self-evolving and self-improving every time we do this.  We start by giving people very small credit lines and see their behavior, and over time just keep increasing the credit line based on the behavior displayed on the platform.  And what this ensures is that in absence of formal credit histories or formal credit scores, which typically would exist in, let’s say, a developed economy like U.S., they don’t exist in India.  Most of our merchants don’t have CIBIL scores.  And we have also seen from our data that credit performance does not correlate to the CIBIL score at all of the merchant in the country.  So, you actually have to look at the data of the trade to be able to estimate the economic strength of a business, both in terms of its ability as well as intent to pay.  And thus we are looking at uses data, transaction data of the buyer, as well as the repayment behavior to actually start giving them small credit lines and algorithm keeps increasing those credit lines slowly, slowly based on the behavior.  This ensures us an ability to actually keep payment security to our sellers while ensuring the credit needs of our buyers is sorted out.

Hans:  In the Bay Area or China the full-stack companies tend to be either very product focused, or operational intensive, or they focus on business model innovations.  You’re building something that needs lots of expertise in logistics in credit management and also tech as well as a use acquisition.  How do you balance this mix at Udaan and be able to grow so fast, so quickly in the last few years?

VG:  I think this is the one where you could say we benefit a lot from our Flipkart experience.  I think I can share that in Flipkart over the five years, there’ll be enough times we would have had discussion around are we a tech company or are we a retail company.  And like starts questioning and we have spent a lot of energies on that, we have done a lot of right things, good decisions, bad mistakes, but we spent a lot of that energy.  And I think e-commerce is fundamentally, and you know this Hans more than I do, it is actually a reasonably complex business.  It has a lot of elements into it.  Because we saw that at Flipkart and we saw pros and cons of that, what we’ve been able to do at Udaan is actually maintain a lot of focus on problem.  Then actually whether or not we’re a tech or a business, we’ve been more focused on what is the big problem we are solving for our buyers, what is a big problem we are solving for sellers, what does the big problem actually at a system level available.  And we bring all of the things together to that like be it technology, be it online, be it offline, be it delivery, be it operations, we look at for that problem, how do we create a solution.  And I think that has enabled us a lot better because I think it’s not just at a philosophy level.  Day-to-day when you are faced with such a problem, how do behaviors of the people sitting in that room when you’re talking what problem and like ensuring that the focus goes back to the problem instead of developing power centers in the company with respect to one single organization.  And I think that has helped us and I think you could say it’s more of the maturity we saw, we’ve gotten from the Flipkart, which has helped us maintain focus on problems rather than a particular type of the company we are.

Rita:  I’m a bit curious about how the three co-founders of Udaan actually come together and have this idea of starting the company.

VG:  I think three of us spent enough time at Flipkart together.  Sujeet, I actually know Sujeet from also 20 years now.

Hans:  From your college days?

VG:  From my college days.  He was a year junior with me at college.  Actually I knew Sujeet as well, like Sujeet was also a junior of mine from the college.  So, Amod, spent enough time with him at Flipkart.  I think, when we guys were talking about it, I would say there are a few instinctive clarities.  Three of us have seen enough of each other in action and Flipkart was, as you can imagine Flipkart was not an easy time.  It was fairly stressful and was fairly spiky.  And when you see people in both good and bad times you are able to see the true fit or true character of the person.  And I think three of us have seen that.  Three of us have also backgrounds where, we were talking earlier, that we all grew up in small towns in the country, grew up in middle class, have those core Indian middle class value.  So, we saw that there is a chemistry, there is a value system match, and we had the ability to push each other.  But also know that we’ll always be, like as a relationship, we’ll always be tight.  So, I think we maintained, we had that ongoing strong trust with us.  We also did one thing.  Very quickly we started Udaan and we got about eight or 10 core people.  These were the people who are some of the best people in the country in the context of technology.  Like if we look at folks who joined us early, these are some of the best tech, consumer tech, Internet tech folks in the country.  Best operations people, best business and category management people.  And what that does, the whole team is now a team about 15-20 people who have a lot of trust with each other and who have the ability to ensure focus on the problems and answers and not worrying about each other at all.  And I think what that has done, that has taken that one of the things we saw in Flipkart was culture of how founders and how early teams operate is how the company starts behaving over time, like that starts setting the tone.  And I think that has helped us, like having a team which could trust each other.  Like people are not afraid about their weaknesses because everybody knows that, and they have sort of seen that.  So, it’s not people are trying to hide anything.  So, that early team of 15-20 people would focus on problems and solving them, and they were like right answer with the answer and everything else was not really relevant.  And the rest of the company developed that culture because they saw that.  And I think that has helped us at Udaan.  Most of the times it’s not like three of us do have the areas where we spend energies.  I spend a lot of energy on business growth.  I spend a lot of energy on category management.  I spend a lot of energy on finance side.  Sujeet, coming from his background, spends a lot of time on operations and Amod spends a lot of time on product and technology.  But three of us together spend a lot of energy crossed as well because we have that next layer of the team, which enables us to take our bandwidth away from and enable us to have cross focus.  We also get together every week, we talk about core decisions, we ensure that speed of decision making is not ever delayed.  And I think there’s a lot of ownership in the company, like people can go ahead and make their decisions and I think that’s beginning to work for us.

Hans:  When I invest early from day one in Xiaomi, I see there’s a lot of ex Kingsoft people that know how to work with each other from before.  And when they go to Xiaomi they know how to get to work and make magic happen.  Hear you recounting how your Flipkart experience binds your team, so you guys know what to do with a new situation, new idea, is very, very similar.  That’s why we always encourage a lot of young entrepreneurs, don’t be a founder yourself.  You join a startup that’s fast-growing, so you see and hear and experience and learn all the things so by the time you want to do your startup you’re ready, you have a common set of experiences to draw from.

VG:  No, you’re absolutely right.  And I think what you are seeing right now in India is actually the second generation of startup ecosystem.

Hans:  That’s exactly right.

VG:   And what you see is that, and it’s actually I would say startup and VC ecosystem.  Everybody is now behaving more deeply. They’re more mature. They’re thinking more deeper. They’re more aggressive.  It’s not like they’re not aggressive or ambitious but-

Hans:  They’re more educated and more learned.

VG:  More learned.  Questions are more deeper.  Larger investments are being taken.  But I think startup ecosystem is also evolving.  It’s learning by itself and you’re absolutely right.  I think for us and for our team a large amount of learning came from Flipkart and I think that we are disproportionately advantaged to any other group of people who are starting because we just have so much of learning together in the team.

Hans:  And what people don’t realize is that in any innovation-type system is the iteration of generation of founders that learn from the previous ones that become better when they do other things.  India, I remember meeting the VCs and meeting the first-time founders in 2005, 2006, 2007. Some of them were still doing offline non-internet stuff.  Some of them was trying to do Internet stuff but it was still on PC desktop Internet.  And now you have, like you said, two generations of founders already. In China we see three or four or five generation founders, and the quality of founders inevitably get better in the next generation.  And this is why we’re hopeful on India producing very interesting companies now.  Can you explain how Jio, GST and UPI has made you guys building Udaan much easier than six, seven, years ago with Flipkart?

VG:  Absolutely.  I think three of them were very big timing.  I think you could say that our timing couldn’t have been better.  We started in 2016 and right around that time, mid-2016 Reliance was aggressively pushing Jio adoption, Jio mobile, so we saw adoption.  And of our early users 8 out of 10 were Jio subscribers.  And Jio brought a lot of the Middle India onto the Internet and with almost high speed of adoption because the cost of data was so low.  And we didn’t ever have to solve, like we remember talking in 2000 early, before we started like how will we solve for people to get the smartphones?  And we never had to solve that now.  We never had to solve that problem of people not having smartphones.  There are certain categories we still do, but I think at a system level we didn’t have to solve that problem at all.

Hans:  Do a lot of them use Redmi Xiaomi phones?

VG:  I think people use a lot of Xiaomi phones. Like Xiaomi has grown quite a bit.

Hans: Together with 4G.

VG:  The second thing was GST.  GST is basically good state tax. Goods and service tax.  India traditionally has had two hierarchy taxation system, government tax and estate tax. Basically at a summary level is, all of the supply chain in India were largely designed around taxation.

Hans:  State focused.

VG:  The state focus.  So, if the goods have to move from one state to another state, they’ll be taxed.  So, manufacturers will ensure that they will create their distribution warehouses in two states, even though it doesn’t make sense in most cases. You would see that there is a state border between Karnataka and Tamil Nadu, the same company will have one warehouse on one side of the border, another warehouse on the other side of the border.

Hans:  So it can trade within the warehouse.

VG:  So, the whole system wasn’t designed and also what we saw was most of the earlier wholesale and distribution structure was all city areas, as you would imagine.  Like if you go to Delhi, some of the older areas of the Delhi city is where you would see these big wholesale markets.  And these are narrow streets all aging go-downs.  If you go to a fresh wholesale market, there will be like fresh fruits and vegetables.  In underground go-downs, which are not hygienic to be stored for. So, you have this aging infrastructure and you have this GST now coming and then government actually came back with GST reform and abolished the state tax pretty much.

Hans:  Right, one national market.

VG:  One national market and goods can flow all over India without seeing interstate issues.  It did two things.  It obviously reduced the cost of the business so a lot of the supply, which was earlier north of India at cheaper prices was not meeting the demand of the south started meeting demand of the south.  So, you’re seeing that value.  And second is it reduced the time, it reduced the time and the cost of delivery.  Earlier a truck from Delhi to the south will take probably six to seven days because you have to stop at every state, go through the state process.  Now the trucks don’t stop, they just go.  So, it increased the speed of delivery, it reduced the cost of delivery, and reduced the cost of taxation.  So, basically at a system level, we have benefited a lot because we got a lot of supply nationally and goods were flowing fast and cost weren’t that high.  So, we got benefited from that and I think that’ll be a push for a long-term tailwind for us will continue to push our business forward.  And I think the third thing was demonetization.  India historically has had what you call as both a white economy and black economy.  Black economy is where people tend to evade taxes.  Now it’s reasonably prevalent in trade in India, depending upon categories.  And there was another thing at back of our mind as to how will an online platform, people will think about online platform because online platforms typically make trade transparent.  But we said that there is enough. When we did our research, what we figured out there’s about 60%-65% of the market was white.  So, we said there’s enough market which is white so let’s work with that.  What happened was Indian government came with demonetization, which was rightly aimed at actually black money in the country. Now what that did was, I would say, more than changing the structure of the cash was white, like that obviously has changed.  It changed the psyches of the people.  What most manufacturers and traders realized that a forward-looking viewpoint of black in the country started going down.  And people started finding ways of how we can actually convert or do a part of our business in white.  Or over time move large amount of our business on white and Udaan there was one of the best channels.  Most convenient, most easy, with high payment security to actually drive a lot of growth in the white business.  So, all three of them, Jio, GST, monetization, they came roughly at the same time when we were early seeding the platform and we got a lot of good tailwind.  And we also didn’t have to solve certain problems we would have earlier, otherwise would have had to solve.  So, I think these were very beneficial to Udaan.

Hans:  How has UPI impact your business?  Unified payment interface?

VG:  I think it’s early days.  If you think about still a lot of the merchant sales are in cash.  It’s still not a move to electronic payments.

Rita:  What would be the percentage of that?

VG:  I would say for most merchants at least 90% is still cash.  It is moving but I think as of today, large amount of sales a merchant does is in cash and obviously they pay back in cash.  However, UPI is definitely, in terms of its adoption going fast.  I think what we also, forward-looking view for us is also that UPI is going to be a large part of the payment, so in the context of e-commerce.  So, we’re investing heavily with our merchants enabling them to pay via UPI directly and also enabling products for them to be able to collect payment from their consumers via UPI.  So, I think we are pushing alongside the trend.  However the current composition is still heavy cash.

Rita:  Hans I wanted to ask you, if you think about Alibaba back then, when they scaled, digital payment was a big player in their success.  Looking at those 90% of the trade is still on cash and it looks like Udaan is doing really well, can you explain that a little bit to us from your perspective as an investor?

Hans:  I think back when Taobao got started by Alibaba, GDP per capita in China was at around $3,000-$4,000 per person.  And in that range, it was easier to see consumer aspire, buy something, goods on Taobao from a manufacturer seller who’s far away.  When you’re dealing with two participants who are far away from a distance standpoint then cash is not going to be useful, will not be as good.  So, what Alibaba ended up doing was coming up with Alipay to get the seller and buyer to work with each other more efficiently.  So, if I’m a seller and VG is a buyer and I sell him something and I ship the goods to him, I need to be sure that he has money to pay for it.  So, if he leaves money in his Alipay account, Alipay let me know in my Alipay account that the money is already in Alipay and I feel secure to ship my goods to him.  And when he gets the goods, he wants to make sure that my goods to him is as good as advertised.  So, he’s not going to release money to me until he’s sure the thing is good.  So, in seven days he doesn’t complain, that’s how the money in his escrow account at Alipay will get released to my Alipay account.  This way Alipay becomes an escrow service to make sure the transaction is good.  And that’s how Alipay grew very quickly with the expansion and growth of Taobao.  And what VG was saying earlier is that GDP per capita in India is still low enough that B2C commerce takes so much time, C2C commerce takes so much time to grow the business over time that he’s better off focusing on B2B first.  And a lot of B2B business today are local so cash is still a big component.  But over time as B2C business, more of them move online, B2C commerce go online then I’m sure there will be more business done between buyer and seller across different regions.  And that’s when UPI mobile payment will become useful.

Rita:  This question has been on my mind from the beginning of this podcast. So what does Udaan mean from a language perspective?  How did you come up with that name?

VG:  Yeah.  So, Udaan is actually a Hindi word and in India, Udaan as a Hindi word is typically associated with somebody who is small who is actually achieving big things.

Hans:  Perfect name.

VG:  Udaan has that connotation of hope, positive, achievement, ambition, for small guys.  Literal meaning of Udaan is taking flight.  Udaan means taking flight.  But typically associated with small guys.  When we were starting the platform, we had this thing in our head that we wanted our platform to be able to connect with our core market.  And we said, let’s have a word which is Hindi and let’s have a word which connects with them.  And we are actually lucky to find the domain name available because as like we purchased it.  But it is a reasonably popular word in the context of the country.

Hans:  Yeah.  Alibaba obviously got started because the fiction, the folklore around Alibaba and you open sesame.  And Jack wanted a term that a lot of people automatically can recall and remember.  And Rokurotan is a very Japanese term that also means hope, that tomorrow will be better, that Japan was modernizing so they use that to connote confidence of consumers into their platform as well.  Can you tell us a bit more about Udaan credit system and how that plays in your value add for the seller and buyer as well?

VG:  Yes.  I think the two points to the current system, which are important to understand the trade credit in India, which are important.  One is that most of the merchants in the country do not have, as we were talking earlier, do not have formal credit histories.  They don’t’ have a lot of recorded bank statements of their sales.  They don’t have a lot of strong set of financial documents for their business.  And they’re also small.  So, if you add all of these three, it’s typically very difficult for them to actually get a loan or a working capital line from a financial institution like a bank.  What that does is, suppliers or wholesalers or family and friends are the people who finance that person as they’re running their business.  And the second thing, which is interrelated is that because of this opaqueness in the credit system, suppliers have a huge advantage.  What they tend to do is they will tend to inflate the pricing at which they’re selling the products to the buyers because those buyers don’t have a lot of options of the people who are going to give them credit.  So, what credit does, it artificially increases the price consumers are buying, small merchants are buying for.  Now what Udaan does is actually trying to address both of these things together.  One is that we are coming onto the platform and making credit very transparent.  We are creating credit lines for our buyers based on their transaction and usage behavior on the platform.  We look at a buyer, they start buying on the platform, we start looking at them for a few weeks and see how frequently that person is buying, how many selection he is buying, how many different sellers he is buying from, what time of the day that person is browsing.  And we have started creating a correlation.  [inaudible 00:39:16] correlation with creating a model, which enables us to start seeing with a certain behavior on the platform.  If you give certain people smaller credit lines how do they behave?  And we start giving the very, very small credit lines like 5,000 rupees, 10,000 rupees and starting the repayment behavior.  And what that does is it enables us to create a credit product, which is based on economic data and which is transparent to buyers and sellers.  And the second thing is it also decouples the pricing of the product from the credit.  So the manufacturers are very, very competitive on pricing the products on the platform because the payment risk has been solved for them.  They get their payments on time, so they are very aggressive in competing on the platform because they want to grow their business on Udaan because their growth channel with high payment security.  So, what that does is it increases the demand on the platform, which helps us keep creating a better credit product because the more buyers are transacting on the platform, we get more data on which we can keep improving our credit model.  So, I think these two notion of decoupling credit from the pricing of the product and using the transactional and the real economic data to assess the credit capabilities of buyers and sellers enables us to really add the value in the system, both from a marketplace point of view as well as for us to create products, which are important.  The SME lending market in this country is actually one of the largest markets, about $400-, $500 billions of unmet credit demand in this market is there with high cost of credit.  If you can create lending products, which we are now, we’re creating lending products for our buyers, we’re creating lending products for our sellers, and we’ll continue to keep increasing that side of the business because by itself it helps a lot on the trade on the platform, and also by itself is a great business opportunity.

Hans:  So, over time you may create your own FICO score on your seller and buyer as well?

VG:  Yes. You would say that if you go at some of the ways the current trade does, they have their own proxies of that.  Like they have things like caution list, like there will be the names of the buyers, they will circulate them on WhatsApp groups between traders and saying like, “Block this guy if he’s in the market,” because nothing exists and now Udaan has an ability to create a transparent.  And we have seen that power.  There are manufacturers.  Let’s say a merchant goes to a manufacturer offline into a market.  That manufacturer asks him, “Okay do you have credit from Udaan?”

Rita:  Do people already asking that?

VG:  If they say no, then say, “Why should I give you a credit?  Udaan has not.”  So, what that does is like Udaan is becoming a system.  If you have not been vetted by Udaan, I’m not going to give you credit.  So, and I think we’re still early in the title but I think that’s where we’re taking, we want us to make it very transparent.

Hans:  We just had an investor in Square, my partner Glenn Solomon, our investor in Square in, obviously, post-IPO Square capital is probably the biggest reason why the stock price and value has gone up.  It’s so useful.  So, speaking of which, as you do more for your sellers and manufacturers, what other services beyond credit, beyond the marketplace that you would want to provide, whether it’s a POS solutions or recordkeeping, whatever it is.  What else are you thinking of?

VG:  Definitely.  I think there’s a bunch of them right because we envision Udaan as an SME platform, as an SME Internet platform.

Hans:  What we call SMB tech in Silicon Valley.

VG:  One area of services we have started focusing on products and services is, what you call as small business SAS, which will be services, products like invoicing, point of sale solutions, billing, accounting, inventory forecasting, demand planning, so that is one set of products, we have started work on that.  Second set of products is helping our manufacturers and brands with creating brand analytics.  Helping them provide analytics on their data, what kind of products, what kind of price point are selling in what parts of the country.  There are older research firms like Nielsen, which provide this data and Udaan is now a huge repository of data in terms of what products, what price points are going.  So, we are working on creating analytical products for our manufacturers and our brands.  We’ve also started work on helping our small merchants with local area marketing for them to be able to leverage, as most of their consumers are becoming digital, we have ability to actually have merchants market their product to consumers digitally, and we’re doing some pilot. I think the more if you see the future of the system or the commerce in the country, you will see these plays like B2B2C plays because now the merchant is digital, consumer is digital, product is available.  If you can market the product to the consumer at the right time, then the gratification can happen very, very quickly for the consumer at the right cost of delivery, which is supported by the system.  So, I think that’s another line, sort of area we’re going to experimenting in.  So, I think these are some of the ones which come to light.

Hans:  Have you ever heard of a company called Payfazz in Indonesia?

VG:  I’ve not but would love to hear that.

Hans:  They’re providing payments, they’re providing inventory management, different kind of solutions to the convenience stores as well in Indonesia.  We’re seeing something similar in Columbia, Bogota, Columbia for Latin American market.  So, it is a common problem.  We have so many mom and pop conveniences that dominate local retail and it’s completely fragmented.  They all need similar solutions.

Rita:  So, let’s go into the last part of the podcast recording.  It’s going to be a quick round of five questions.  So, just say what’s first come to your mind.  Don’t think too much about it.  What are your most regular purchases online for yourself?

VG:  Shoes.

Hans:  How many shoes do you buy?  How many shoes do you need?

VG:  I buy once every six months.  I’m not like—

Hans:  Oh okay.

VG:  That’s the only thing I buy typically online.

Hans:  Interesting.  What kind of shoes?

VG:  Typically sports shoes.

Hans:  Sneakers?

VG:  Yeah sneakers or sometimes casual shoes.

Hans:  Oh, okay.  Have you ever shopped on StockX or Goat before?

VG:  No, I haven’t.

Rita:  Who’s the entrepreneur you admire the most and why?

VG:  I think for me, I would say definitely I admire Jack Ma a lot.  I think what he has been able to do, at least my outside view of what he has been able to do with Alibaba and what Alibaba did to China, I think it’s a completely different thing about the country.  I think that’s somebody I admire most.

Hans:  And you probably want to do something similar in India as well.

VG:  Yeah, I think India has potential.  It has that potential, where it is in its life cycle as a country.  I think it has potential for large, big transforming businesses for economy in society.

Hans:  Yeah, that changes lives.

Rita:  What’s something that you’ve read or heard recently that you would recommend to other people?

VG:  I’ve read, recently on LinkedIn, there are people who keep forwarding things.  There have been some of those clippings, which come by what Jeff Bezos has done with respect to his style of management and I think some of them are fairly neat.  The other one I tend to read a lot is there’s a guy named Ray Dalio for Bridgewater and I think his principles on managing and building a culture, I think they are very, very powerful.  A sort of group of people who are very ambitious, I think it’s very powerful.

Rita:  What’s something on your desk that has been with you all of these years?  Or specifically when you were at Flipkart it’s there and now it’s on your desk at Udaan?

VG:  I think it’s my laptop bag.  I’ve had that laptop bag for a long time now.

Rita:  Is that the one you carry today?

VG:  Yeah, I do.  I think that is something that has not changed for a while now.

Rita:  What do you do when you’re really stressed?

VG:  Actually one of the things which I’ve realized is, we didn’t talk about it, I have two kids.  One is two-years-old, and one is six-years-old.  And I think it’s amazing to just spend time with your kids because no matter, you spend time with them and then you start feeling okay.  Everything is going to be fine.

Rita:  It makes you optimistic.

VG: Okay as long as both of them are fine.

Hans: Life is okay.

VG:  Life is okay.  Everything else can be figured out.  All other problems can be solved.  So, I started thinking about that and I think that helps me go easy a bit.

Hans: Great.  Thank you so much.

VG:  Thanks guys.  Appreciate.

Hans:  This will be a fantastic podcast.